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Archive for January 28th, 2010

President Barack Obama unveiled some new ideas meant to help our country’s struggling middle-class pay their bills and care for their families. This week, he proposed expanding a popular program that puts a cap on monthly student loan payments for college graduates with low or moderate incomes in an effort to ease the debt burden for many young adults. The details of the president’s proposal are slim right now, but Nick Anderson of the Washington Post offers this insight:

Under the proposal, monthly payments on federal loans would be limited to 10% of discretionary income — above a “basic living allowance” — for qualified borrowers. That would be lower than the current cap of 15% in the income-based repayment program that began last summer. In addition, the administration said, certain borrowers could be eligible for loan forgiveness after 10 years in public service or 20 years in other fields of work.

There are many questions that are still left unanswered about this proposal: Does this include both private and federal education loans? What is a “basic living allowance”? Can we look forward to capped interest rates? Will everyone, regardless of industry, be allowed to stop making payments after 20 years? Does this include grad school?

In the meantime, we can make some approximations. Say you make $30,000 a year but owe $20,000 in student loans – your monthly student loan payment would be $115 a month under this proposal, rather than the $228 a month it would be under a standard 10-year repayment plan.

Millions of students are suffering increasing debt levels. About two-thirds of graduates took out loans to pay for college over the past three decades, and their average student debt is over $23,000! To calculate what your monthly payments would be under President Obama’s proposal, visit Forbes’ student loan calculator, located halfway down the page. Note that this calculator is for a single filer without children.

The additional flexibility in repaying student loans will complement the Administration’s agenda to make higher education more affordable. Other proposals have included increasing Pell grants, reforming the student loan program, making permanent the new $2,500 American Opportunity Tax Credit for college costs, expanding low-cost Perkins loans, strengthening community colleges and increasing graduation rates at both two- and four-year institutions.